Thursday, May 31, 2012

Markets were mixed and concluded a very bad month

Late day buying brought averages back near breakeven.  Dow finished down 26, advancers & decliners were about even & NAZ was off 10.  The Financial Index rose 1+ to the 188s, still at depressed levels.

Buyers reduced losses for MLPS, giving the index a loss of only 3+ to the 365s & the REIT index rose 1+ to the 248s.  Junk bond funds were mixed, after having a rough month & gains in Treasuries were trimmed late in the day (see below).  Oil had a bad day & a terrible month.  Gold has also gotten little respect lately, even with heavy demand for safe haven investments.

JPMorgan Chase Capital XVI (AMJ)

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CLN12.NYM....Crude Oil Jul 12...86.65 ...Down 1.17  (1.3%)

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Treasuries rallied, pushing 5, 7- & 10-year yields to record lows, amid concern the European debt crisis is widening & on data showing the US economic expansion slowed in Q1.  The yield on the 10-year note pared losses as a report indicated the IMF was discussing contingency plans for Spain’s banking crisis & a Greek poll showed support for the largest pro-bailout party.  30-year bond yields earlier fell to the lowest since Dec 2008 on speculation that tomorrow’s May employment data may trail estimates. The 10 year yield reached as low as a record 1.53%.  5- year note yields dropped as low as 0.63% & 7-year note yields tumbled to 0.98%. That's less that 1% annually for 7 years.  The € fell to an 11-year low versus the ¥, while 10-year yields on German, French, Canadian & Dutch bonds declined to records lows.  30-year bonds yields declined six basis points to 2.65%.  But the record low was 2.509% in Dec 2008.  10-year yields are down from 5.3% in Jun 2007, before the financial crisis intensified, & below the average of 4.96% during the past 20 years.  Trading volume yesterday rose to the highest since Apr 10, reaching $324B, up from $196B on the previous day & is above the 2012 average of $242B.  US debt pared a 2nd monthly advance earlier as a technical indicator signaled their recent decline was poised to end.  All this money is betting against a stock market rally.

The IMF is not preparing financial aid for Spain & the country denied any talks about a bailout even as its borrowing costs approach euro-era records.  “There’s been no request for financial assistance from Spain and the IMF is not making plans for financial assistance to Spain,” Gerry Rice, the IMF’s director of external relations, said.  Spain is trying to shore up lenders & help cash-strapped regions as its own 10-year bond yields approach the 7% level that prompted bailouts in Greece, Ireland & Portugal.  It is “senseless” to say Spain is talking to the IMF, the Spanish Economy Minister said after the Wall Street Journal reported that the IMF’s European department started contingency plans for a rescue loan to Spain should the country fail to find funds to bail out Bankia.  “The IMF’s spokesman today said no bailout is contemplated for Spain. I have nothing to add further than refer to his comment.”.  IMF Managing Director Lagarde will meet the Spanish Deputy Prime Minister to discuss “recent economic developments in Spain.” & an IMF team will start its annual assessment of the country’s economy next week.  An IMF spokesman said the body always has contingency plans. Part of the job is to be prepared for any eventuality & the IMF is always discussing scenarios with all member countries. This is the usual gobbledygook expected from financial agencies.

Spain Hasn’t Asked for IMF Aid, No Help Planned

Short sales of US homes rose to a 3-year high in Q1 as banks agreed to let more borrowers unload property at a loss, putting the transactions on pace to surpass deals for foreclosures.  Sales of homes in the pre-foreclosure process increased to 109K, up 25% from a year earlier & the most in 3 years.  Most of those transactions were short sales, in which the lender agrees to a price that’s less than the mortgage balance. The number of bank-owned homes sold during Q1 fell 15% from a year earlier to 123K.  Lenders are stepping up short sales to reduce losses, take advantage of gov incentives & avoid legal challenges to foreclosures as they struggle with non-performing mortgages.  Pre-foreclosure homes, those that had received a default or auction notice, sold for an average $175K in Q1, with an average discount of 21% compared with properties not facing seizure.  The average discount was 16% a year earlier.  The 5 largest U.S. mortgage servicers, including Bank of America (BAC) & JPMorgan (JPM), agreed to pay $25B to settle allegations they wrongfully repossessed homes. The deal, which requires banks to produce evidence before seizing property from a delinquent borrower, was expected to trigger a wave of foreclosures that hasn’t materialized yet.  This is part of cutting the huge inventory of homes that is a major depressing factor for the building industry.

Short Sales of U.S. Homes Reach Three-Year High as Foreclosure Deals Drop

Buyers came back to limit damage for the day, but May was not a pretty month for stocks.  Then sellers took over in the last hour.  Dow fell over 800 in May & enthusiasm by the bulls has been subdued.  The European debt mess keeps going from bad to worse.  I get tired of saying that, but it tells the story. The China slowdown is getting less attention, but it is having a negative effect on the global economy.  The US recovery is stumbling.  GDP data today was a reminder that while the economy is growing, it's not good enough to reduce the high unemployment.  Dow started the month well over 13K.  Now its trying to hold above 12K.  The jobs tomorrow report has the potential extend the slide for the Dow.

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